London Essays

Food Tech

Victoria Albrecht and Nadia El Hadery

Victoria Albrecht

Victoria Albrecht is the co-founder of YFood, the company behind London Food Tech Week (www.foodtechweek.london). Previously, Victoria was the Managing Director of Food Startup School.

Nadia El Hadery

Nadia El Hadery is the co-founder of YFood, the company behind London Food Tech Week (www.foodtechweek.london). Before founding the Food Tech company Flavrbox, Nadia was a VP at Barclays and Managing Director of Tower Broking Athena.

What is it? Can it help solve London’s food challenges? And why is it so undervalued?

There’s no getting away from technology. For the average Londoner, summoning a driver, ordering food or navigating your way around the city via a smartphone have all become commonplace and seamless activities. Technological proliferation is such that a new vernacular is emerging: ordering a taxi or booking accommodation becomes ‘getting an Uber’ or ‘Airbnbing’.

Yet, despite the technologically-enabled disruption that is changing traditional industries and sweeping aside conventional business models everywhere, one of the most important sectors of all is being starved of attention: food tech. This is odd, considering how important food tech has been in the past: after all, it was the development of new farming technologies that brought about the agricultural revolution and contributed to Britain’s later industrial pre-eminence.

Promoting and nurturing the London food tech sector would help in an area that desperately needs innovation. As a result of population growth and urbanisation, our existing food infrastructure faces a number of serious challenges. The UN predicts that world population will reach 9.7 billion by 2050.1UN DESA (2015), World Population Prospects: The 2015 Revision, available at unctad.org/en/publicationslibrary/ditcted2012d3_en.pdf

Will Britain be able to afford to waste one-third of the food we grow then as we do now? The outlook is complicated by climate change and water shortages, both of which are intimately related to a food ecosystem that is responsible for around one-half of greenhouse gas emissions.3UNCTAD (2013), Trade and Environment Review. The environmental and resource threats, combined with the growing pressure on public healthcare caused by diet-related illness, suggest that changes are not only necessary, but essential: the cost to society of obesity alone in the UK was £47bn in 2012.4McKinsey Global Institute (2014) Overcoming obesity: An initial economic analysis.

Fortunately, food tech entrepreneurs see challenges like these as opportunities, and technology as the route to solutions. But what kind of activity, exactly, are we talking about?

Food tech is new technological innovation applied to the food value chain, that complex line from farm to plate to bin – production, transportation and storage, processing, marketing, distribution, consumption and disposal – and it has the potential to change this value chain in a number of ways.

First, food tech can change the value chain by replacing existing technology solutions, either completely or partially. For example, food labelling currently requires ‘use by’ information to be printed onto food packaging or stuck on with a label. Bump Mark is a new food tech company that has developed and is testing a bio-reactive food expiry label. This uses gelatine to model the decay process of food: you can tell exactly the condition the food is in simply by running your finger across the label. If the label is smooth then the food is fresh; if you feel bumps the gelatine has broken down, suggesting that the food is coming towards the end of its shelf life. This innovation has the potential to replace the existing labelling process and produce huge efficiency gains, as consumers get better information on the freshness of their produce and sellers can stop throwing away food that is still fit for consumption.

Second, food tech can create entirely new parts of the value chain and open up new markets. For instance, bio-bean is a London food tech company started in 2014, the first in the world to industrialise the process of recycling waste coffee grounds into advanced biofuels and bio-chemicals. bio-bean collects waste coffee that would have been disposed of from cafés and restaurants and takes this to its factory where it can process 50,000 tonnes of waste per year. That accounts for around one in every 10 cups of tea and coffee consumed in the UK. bio-bean has created an entirely new market for coffee-waste-powered, carbon-neutral biofuels, which can be used for heating buildings, displacing fossil fuels. It is also pursuing a number of exciting research projects that could result in the main market for its coffee-based fuel becoming London’s own transport system.

Third, food tech has the capacity to eliminate links in the value chain. For example, a London-based startup, Farmdrop, uses a streamlined distribution channel and an e-commerce platform to bring consumers organic produce directly from local farms. Food products can be transported from the farm to your doorstep in just 19 hours at very competitive prices. This innovative business model uses digital technology to eliminate the need for third-party distributors that increase costs and reduce produce freshness.

Traditionally, the food industry has presented significant barriers to entry for newcomers. The major players, large companies, have vertically integrated the food value chain and controlled the important distribution channels. The large, upfront costs associated with, for instance, food processing or distribution at scale have been a deterrent. So it might be assumed – and probably has been – that food tech inventions by small startups would be slow to scale up. What this view misses, however, is that many of the business models enabled by food tech are inherently highly scalable because they leverage software and digital technology. Many food tech business-to-consumer mobile applications can scale to thousands of users all over the country in a matter of weeks, exploiting the viral nature of social media and network marketing.

An interesting example comes from a company called Olio from North London, which launched in December 2015. Olio saw the 7m tonnes of food and drink thrown away every year from households in the UK as a huge opportunity; the company launched a free app that connects neighbours with each other and with local shops and cafes so that surplus food can be shared rather than thrown away. Users photograph items with their smartphones and add them to the app. Neighbours receive customised alerts and can arrange for pickup or delivery. The idea was initially piloted in north London and, initially, the founder acquired signups by meeting people face-to-face and persuading them to adopt the service. Clearly, this model couldn’t scale; but, as a result of referrals and a social media campaign, the app has now been downloaded 45,000 times and has more than 1,800 ambassadors to help spread the word. The speed of Olio’s spread has been remarkable for a company of its size: it has harnessed mobile technology, the power of the sharing economy and local communities to unlock the value in previously wasted food.

Similarly, companies like Graze, Gousto and Farmdrop have grown rapidly by offering aggressive discounts to customers for referrals to their platforms, employing viral growth accounting to estimate the lifetime value of a customer and the maximum viable cost of acquiring a new one.

A lack of understanding of the scalability of food tech businesses may leave entrepreneurs thinking the sector is less promising than others. Investors, too, are significantly undervaluing food tech, not least by failing to acknowledge the social impact of potential disruptions. Solving the problems of food systems would have enormous positive overspill benefits: better food which is better produced and distributed can reduce problems of healthcare, sustainability and climate change.

The market doesn’t factor in all the additional indirect benefits to our healthcare system and the environment. For example, when investors choose to fund a London based food tech company like Winnow, which saves restaurants money by helping them manage food waste, they only take into account the future profits Winnow will generate. Since Winnow’s revenues depend on capturing some of the restaurants’ saved money, its profits have an upper limit based on how much money the restaurant recoups from its technology. In reality, the benefit to society from the investment far exceeds the profits the firm generates.

If we can reduce food waste, we will manage our scarce resources more efficiently and leave the planet in better shape. We need an approach to food tech investment that values its (often very high) social returns.

A further reason for the inadequate focus on the potential of food tech is that the government and support organisations have prioritised other sectors. A great deal more support has gone to mature sectors that are already well resourced, despite the high marginal returns that would accrue from investing resources in food tech. The UK fintech sector has received unprecedented help from the government this year, with the Economic Secretary to the Treasury recently announcing the establishment of an overall UK fintech strategy, including the creation of professional services information hubs and significant support for fintech firms to expand internationally. Given the manifest importance of the food tech sector to the health of the economy, why it would feel so odd to hear the government announce an overall UK food tech strategy? Perceptions and priorities need to change.

Relatively few large food tech companies have emerged in London in recent years. Despite having a population nearly three times that of Silicon Valley, London hasn’t seen the same kind of innovation. So how do we change things? The standard toolkit for supporting technology startups 5Coadec, Towards a Startup Manifesto, survey, May 2014, available at: www.coadec.com/wp-content/uploads/2014/09/Startup-Manifesto.pdf also applies here: making government office space available to incubate innovative startups; the creation of national databases of contacts in professional services firms; more substantial investment tax incentives. But in order to encourage food tech specifically, the government should consider the following recommendations.

First, a stronger link between the large companies in the food sector and the food tech startup ecosystem is needed to empower entrepreneurs to create innovative solutions to real industry challenges and problems. In order to achieve this, large companies must share relevant insights and data on areas where innovation is needed. Government could provide incentives for collaborative innovation and open up data. Collaboration between entrepreneurs and the industry of this kind would allow startups to innovate independently, with support from the big players, while remaining agile and nimble. Large companies could provide insight while gaining access to talent – and, by becoming clients to the startup, could help to implement and scale the innovation.

Second, a greater connection between industry and academia would facilitate the commercialisation of more research. Currently, UK universities lag behind their American counterparts such as Stanford and MIT. For example, the top UK university for generating spinout companies is Oxford, which produced 26 across all sectors between 2010 and 2014, compared to Stanford’s 24 last year alone.6www.spinoutsuk.co.uk as cited in FT, April 25, 2016. The promotion of entrepreneurial spirit and business acumen at university would go some way to addressing this gap, as would government support for more industrial placements on undergraduate and postgraduate degrees.

In addition, the opening up of public data has proved to be hugely beneficial to tech startups. Since the launch of data.gov.uk in 2010, 390 apps have been created that rely on government data. The GLA’s data led to the creation of one of London’s most popular apps, Citymapper, which uses public transport location tracking to show when the next bus or train is coming. Defra’s proposal to make available over 8,000 data sets in the coming year provides potential for innovators to create new data-driven products. But the real challenge will be to distribute the data in a way that is easily accessible and comprehensible, so that non-technical entrepreneurs can find ways to develop applications.

The government should also promote and support ecosystem-building initiatives that bring together the current pockets of activity. There are simple and inexpensive ways to do this. For example, the US Embassy in London recently ran a weekend hackathon for technologists, entrepreneurs and industry experts to tackle fishing sustainability problems using technology. Government-sponsored and supported events could bring together early-stage food tech startups and venture capitalists.

This would not only help foster and strengthen a network, but would keep government officials closer to the action so they could see how, with a little support, London could blossom into the leading food innovation hub in Europe.